Currency Debasement Rates To Accelerate Across The Board

The following is commentary that originally appeared at Treasure
Chests for the benefit of subscribers on Tuesday, May 3,
2011.

Question: If the US is to maintain it's quantitative easing (QE) policy by
at a minimum reinvesting the interest from maturing bonds, which should still
be enough to keep official interest rates subdued for a while, then why would
the dollar ($) rally in coming months? Answer: Because major US trading partners
will begin to debase their currencies at even faster rates, making the $ more
attractive. Thus, by July at the latest, and likely sooner given Japan has
already begun
this process (not surprising considering their economy is crashing because
of the radiation problem), the $ should have made a bottom, which is normally
associated with a resumption in the credit crisis these days, but in actuality,
as per above, would not be the reason. All we need to make the turn in the
$ a reality is for the euro to top out, where with troubles in the zone heating
up once again, this should come sooner than later. The larger understanding
here is the credit crisis never went away even though the economy appears to
have been recovering since 2009, and now the weaker States in the Western alliance
are crashing again, allowing for the fiat currency differentials on the global
chess board to be realigned temporarily.

And any strength in the $ should prove quite fleeting in fact because not
only are periphery economies crashing once again, but now, core economies,
including the US, are threatening to do the same with their exploding deficits,
increasingly unsettled debt markets, and out of control bureaucracies / plutocracies.
So, it's important to understand this is why only short lived cyclical corrections
in US$ priced asset / commodity groups into the fall at the latest should be
expected once they arrive, which should be sometime around mid-May in a perfect
world. I say 'perfect world' here because a goodly number of market timing
services are expecting this to occur at this time, so, don't be surprised in
the present trends run longer in order to frustrate initial waves of speculators
looking to capitalize on what should prove to be intermediate degree turns.
Of course I could be wrong in this regard with currency speculators now
in a position to affect such a turn, so at a minimum, one should likely
be applying hedges / lightening long position now to be safe.

Again however, and as with the central message in Martin
Armstrong's latest, with no other avenues (think fiscal policy) to pursue
that would be effective (late stage fiat currency economies are eventually
consumed by the need for speed [in currency debasement] rendering all other
measures impotent [hence the need for hyperinflation eventually]), don't
expect any correction in the inflation trade to last long (expect a cyclical
correction [less severe and temporal] lasting no longer than six-months),
because the markets will react to a continued acceleration in currency debasement
rates eventually no matter how well its hidden. We know this not just because
of history or logic, but because signals are now arriving in the empirical
world that work together to confirm such thinking. A good example of this
is the monthly buy signals on the major US stock indices we got last
week. As you know from above this does not mean they will go straight
up from here. What it does mean however is even after a correction that takes
prices back down, which again, should be cyclical in nature, new highs are
expected next year, which is consistent with our thoughts on the unrelenting
inflation being the bureaucracy's continuing modus operandi no matter what
happens to the $, or bonds, or whatever, until it blows up. Then they will
care eventually, when its too late, but not until then.

Until then they will play the game, which means printing money / expanding
the monetary base and
hoping nobody notices, creating distractions to keep the ever-increasing
ranks of the poor (being taxed by inflation) occupied while the rich get
richer. And the plutocracy has its larger bureaucracy in place in order to
attempt maintaining the status quo, which again, means attempting to hide inflation
at any cost. (i.e. note the smack-downs in gold and silver this
week.) However this won't work for ever, where as alluded to above, eventually
either the currency and / or bond market will blow up no matter what, which
could also have a disastrous
effect on stocks as well. For now however, our view is that starting sometime
over the next month or so the inflation trade will have a cyclical / intermediate-term
correction that could last up until November at the latest (May tops often
lead to November bottoms), to be followed by a wild ride into next year as
both inflation rates and prices explode higher. That's what the bond market
is telling us, where although its been behaving well of late with weak data
points and monetization practices still in full force, it should be noted that
if the count below is accurate, Treasuries could begin misbehaving sooner rather
than later. (See Figure 1)

Figure 1

This is of course not news to anyone who believes the end of QE2 will have
a negative impact on Treasuries starting in June, where in fact it appears
this timing could coincide with a continuation of the price slide that started
last October, as can be seen in the inverse 30-Year US Treasury ETF above.
Of course the system still has self-correcting mechanisms operating that could
delay the day of reckoning for Treasuries despite all the manipulating to this
end already by the bureaucracy's price managers, so speculators considering
shorting long bonds soon should take this into account before acting. Here,
with implied
rates and credit spreads both
on the rise, it's likely stocks begin a correction no later than June as well,
which should keep a bid under Treasuries (despite QE2 ending) until equities
find a footing sometime in the fall. And in speaking of equities, to be clear,
we are expecting one more push higher off of the weakness experienced this
week to end the larger degree sequence before the cyclical correction referred
to above sets in, and the $ begins the counter-trend rally that we have been expecting
to begin in late May / early June - right on time. Just watch for a non-confirmation
in the Gold / Silver Ratio (stocks
rally set against a divergence), along with the VXO (see below) re-entering
the diamond it had traced out since 2008. (See Figure 2)

Figure 2

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